Introduction
On 17 March 2023 the Government published a consultation paper (the Consultation Paper) seeking views on technical aspects of the design of its proposed new Infrastructure Levy (the Levy).
The Consultation Paper can be accessed at the website link below:
https://www.gov.uk/government/consultations/technical-consultation-on-the-infrastructure-levy
The consultation lasts until 9 June 2023 and will inform the preparation by the Government of draft Regulations to be published in the future at a time after the Levelling Up and Regeneration Bill (the Bill) which is currently before Parliament and sets out the framework for the new Levy has achieved Royal Assent.
In this blog post, we provide a summary of the Government’s proposals for the design of the new Levy and how it will impact on the existing system of developer contributions towards funding infrastructure and provide our comments on this.
The Infrastructure Levy – Key Points
We summarise below the key points on how the new Levy will operate and its impact on the current system of developer contributions towards funding infrastructure based on what we know so far from the Bill and the Consultation Paper:
- The Levy will reform the existing system of developer contributions towards funding infrastructure (currently provided by the Community Infrastructure Levy (CIL) and the use of Section 106 Agreements) in England with what the Government refers to as “a simple, mandatory, and locally determined” national infrastructure Levy.
- CIL will be abolished in England, except in London where Mayoral CIL will continue. Unlike CIL, the new Levy will (1) be compulsory and Local Planning Authorities (LPAs) will be obliged to introduce it in their administrative areas, and (2) the new Levy will be used to fund infrastructure which includes affordable housing.
- The Levy rates and minimum thresholds for applying it will be set locally by LPAs and LPAs will also be responsible for collecting the Levy.
- The Bill contains a definition of ‘development’ which the Levy will be charged on which is broad and covers the creation of new buildings and changes of use in existing buildings, but allows for Regulations to set out in more detail what is and is not to be treated as development for the purposes of the Levy.
- The Levy will be charged based on the Gross Development Value (GDV) of a development upon its completion. The final GDV will be reflected in the sales price of the development, or a valuation of the market price if the development is not sold.
- There will be the following types of infrastructure under the new Levy system, each to be treated differently:
– Infrastructure ‘integral’ to the successful functioning of a site, such as on-site play areas, site access and internal highway network or draining systems, will be delivered by developers and secured through planning conditions. Where this is not possible, ‘integral’ infrastructure will be delivered through targeted planning obligations known as ‘Delivery Agreements’.
– All other forms of infrastructure – known as ‘Levy funded’ infrastructure – will be paid for through Levy revenues.
- The use of Section 106 Agreements will be retained in the new system but for restricted purposes. Sites will come forward through the following three different ‘routeways’ depending on their character in which Section 106 Agreements will play a role:
- The core routeway – The majority of schemes will be subject to this routeway. The Levy will function as a cash-based system where rates and thresholds apply. Section 106 Agreements will retain a restricted function, limited to securing matters that cannot be conditioned for.
- The infrastructure in-kind routeway – On the largest and most complex sites, often with unique infrastructure requirements, Section 106 Agreements can be used to deliver infrastructure as an in-kind payment of the Levy. The value of this agreement must equal or exceed what would have been secured in cash through a calculation of Levy liabilities.
- The Section 106-only routeway – Sites where GDV cannot be calculated, or where buildings are not the main focus of development, such as minerals or waste sites, will not be subject to the Levy. Planning obligations will apply as now.
- The core routeway – The majority of schemes will be subject to this routeway. The Levy will function as a cash-based system where rates and thresholds apply. Section 106 Agreements will retain a restricted function, limited to securing matters that cannot be conditioned for.
- Timing – We of course will need to await the draft Regulations which will provide for further details on the operation of the Levy and its proposed timing, however in the Consultation Paper the Government has already stated that it intends that the Levy will be introduced through a “phased ‘test and learn’ process over several years” and also included a prospective timeline stating that “the introduction of the Levy will be undertaken over the course of a decade”.
Our Comments
We have significant concerns regarding the introduction of the new Infrastructure Levy. In our view, the Government is making the same mistakes it did when it introduced CIL by again proposing to add further complexity to and alter a long-established system for developer contributions towards funding infrastructure which generally works well.
The fact that the new Levy will be compulsory for LPAs to introduce also will have resource implications for LPAs, many of which are already struggling to properly resource their planning departments. Introducing a new Levy which is more complex in its operation than the existing system will place a heavy administrative burden on these LPAs.
It has always been true that the existing system involving the use of Section 106 Agreements to provide for developer contributions towards funding infrastructure can in some cases (particularly for more complex developments) require lengthy negotiations between the legal teams of developers and LPAs, however this is a system which is well known to both LPAs and developers having been in place now for several decades and it also provides greater flexibility to these parties when agreeing obligations for a development site (including providing for affordable housing) than what can be achieved by simply introducing a fixed Levy (something we have already seen with CIL). The Government’s proposals to now retain the use of Section 106 Agreements (albeit in a restricted form through three different routes), in addition to introducing the new Levy and to use planning conditions to also provide for infrastructure, to us just introduces a vastly more complex system which simply is unnecessary. And if you are in London, then don’t forget there will in addition still be Mayoral CIL to comply with, so we will have literally a ‘smorgasbord’ of ways to fund infrastructure which LPAs and developers will need to contend with.
Saying all that, whether the new Levy even sees the light of day is questionable in our view and it may end up in the dust bin with the many other proposed planning reforms floated by Governments in the years gone by, particularly when one takes note of the Government’s statements in the Consultation Paper that the new Levy will be introduced through a phased test and learn process of several years and could be introduced over the course of a decade which of course requires that the Government win the next general election. It also suggests to us that the Government does not know whether the new Levy will actually work in practice and achieve its intended aims such as providing more funding for affordable housing.
Note: all comments and views expressed in this blog are merely opinions and provided for information purposes only and do not constitute legal advice which can be relied upon. Should you require legal advice on a matter then please contact us
